Civil Society plays an increasingly important role in international human and social welfare. The most important prerequisite for the development of the NGO sector is a steady level of trust and engagement from society. This public trust and engagement is based the organization’s level of accountability.

Charity Star is an independent nonprofit organization working to establish an international standard for NGO accountability. We believe in an open society where access to information is key in building trust and engagement.

Our work includes research and advocacy within the field of NGO governance.

Making the case for unrestricted giving

It’s time for innovative funding models that put NGOs in control, allow more flexible responses and strengthen local organisations

As we approach 2015 and reflect on the fact that not one of the millennium development goals will be achieved in the world’s most fragile states, we must surely be asking ourselves what more we can do, and perhaps more importantly, what we can do differently. Philanthropy will play an important part in the answer, not only because of the financial resources philanthropists bring to the equation, but because of the risks they are prepared to take.

I have often heard quoted that it is a duty of philanthropists to take risks and innovate, and my colleagues and I at the Stars Foundation would agree wholeheartedly with the sentiment. One of the arguments we would make (and where we are lucky enough to be able to walk the talk) is that in the world of global development there needs to be a bigger space for unrestricted giving (unearmarked funds), or other innovative funding models that put NGOs in control, allow more flexible and responsive approaches and strengthen local organisations.

Four years of evidence from our Impact Award recipients is starting to show that unrestricted giving allows excellent organisations to invest in areas outside programming and to target equally important aspects such as their profile and own development. The result is not only a healthier organisation, but usually a marked and positive change in the quantity and quality of programming being delivered.

We would even suggest that unrestricted funding mechanisms give donors more bang for their buck as the impact is cross-cutting (touching profile, organisation and programme). Furthermore, because the local organisation decides what to do with the money – rather than adhering to a donor agenda – it feels very much responsible for the choices it has made.

In 2010, we asked 650 of the applicant organisations to our award scheme whether they had any unrestricted funding. Astonishingly, 52% had none at all and for a further 21%, it accounted for less than a quarter of their overall funding. Significantly, many of these organisations had no concept of unrestricted funding, having been born and brought up on a diet that had never made this option available. We asked the same group to identify the key challenges they face and more than two-thirds of responses related to funding or funding practices.

So there’s a challenge in itself. But innovation doesn’t just stop when we accept that unrestricted funding has a place at the table and enough of us act accordingly, it needs to be braver than that. Imagine, for example, where we might be if more of the money pumped into development over the past 50 years was now sitting in well managed endowment funds owned by southern NGOs?

Some of our recipients choose to invest all or part of their award, and if they have specific objectives related to the income (say, endowing a particular salary) then evidence of impact is measurable and easily shared. Of course, proving that this kind of funding is charitable is a legal requirement for all UK registered charities, and we have taken advice that supports such use of our funds as long as we maintain a monitoring role with the recipient organisation (which we do). This could be as simple as receiving annual audited accounts but is, of course, better if backed up by a real relationship and regular monitoring visits.

There is no shortage of organisations doing great work in the world’s poorest countries. Finding them and rewarding those that have demonstrated excellence pays a development dividend that merits our attention.